In a surprising turn of events, a rebound for Nvidia has propped up a weakened Wall Street, with the S&P 500 edging closer to its all-time high. While most stocks outside the artificial intelligence (AI) frenzy experienced declines, the Nasdaq composite saw a significant leap of 1.3%, marking its first gain in four days. The Dow Jones Industrial Average, which does not include Nvidia among its members, lagged behind and sank by 0.8%, shedding 299 points.
Nvidia, a leading chip company, witnessed a notable climb of 6.8% after a three-day losing streak. This recent dip, which saw the stock lose nearly 13%, has raised concerns about a possible bubble in the stock market and overly optimistic investor expectations. However, market watchers remain relatively unfazed, considering Nvidia’s remarkable 1,000% surge since autumn 2022.
While Nvidia’s influence on the S&P 500 cannot be understated, there is a growing desire for more stocks to participate in the market’s upward trajectory, rather than relying solely on a handful of AI winners. Monday’s rally, where banks, oil companies, and other stocks outside the AI sector performed well as Nvidia declined, exemplified this sentiment. However, the ability of these stocks to continue compensating for the AI darlings may be challenged if the U.S. economy’s growth continues to slow.
The focus in financial markets is gradually shifting towards growth, moving away from the sole emphasis on inflation and interest rates, according to strategists at Morgan Stanley. Pool Corp., a distributor of swimming pool supplies, experienced a significant tumble of 8% after reporting a decline in new pool construction due to cautious consumer spending on big-ticket items. Similarly, SolarEdge Technologies dropped by 20.6% following news that a customer owing the company $11.4 million filed for Chapter 7 bankruptcy, raising concerns about potential financial losses.
The broader retail sector has experienced fluctuations in sales, with lower-income customers struggling to keep up with rising prices. However, the job market remains relatively solid, and consumer confidence, although slightly lower than expected, remains intact. Upper-income households, in particular, are demonstrating resilience, as evidenced by increased bookings for cruise ships. Carnival, a prominent cruise company, saw its shares surge by 8.7% after raising its profit forecast for 2024 and reporting record-breaking bookings for the rest of the year.
Overall, the S&P 500 rose by 0.4%, coming within reach of its all-time high at 5,469.30 points. Conversely, the Dow Jones Industrial Average dropped by 299.05 points to 39,112.16, while the Nasdaq composite jumped by 220.84 points to 17,717.65.
In the bond market, Treasury yields remained relatively steady, with the 10-year Treasury yield holding at 4.23%. This decline in yields since late April, when they peaked at 4.70%, has alleviated pressure on the stock market. The hope among investors is that slowing inflation will prompt the Federal Reserve to cut its main interest rate later this year. However, historical data suggests that stocks do not always rise following the first rate cut, with the S&P 500 experiencing an average decline of approximately 20% in the 250 days that follow. The reason behind the rate cut is crucial, as it determines the impact on the stock market.